# THE COMMERCIAL TAX OFFICER & ANR v. MOHAN BREWERIES AND DISTILLERIES LIMITED

- **Citation:** [2020] 6 S.C.R. 865
- **Court:** Supreme Court of India
- **Decided:** 2020-06-29
- **Case number:** Civil Appeal No. 7164 of 2013
- **Bench:** A. M. Khanwilkar, Dinesh Maheshwari
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-commercial-tax-officer-anr-v-mohan-breweries-and-distilleries-limited-34609
- **Pages:** 90

## Headnote

Tamil Nadu General Sales Tax Act, 1959 - s.7-A - The assessee
is engaged in the business of manufacture of Beer and IMFL
products - For the purpose of the said business of manufacture of
Beer and IMFL, the assessee purchased empty bottles from
unregistered dealers situated outside the State as well as from nondealers - The High Court held that the purchase of empty bottles
from unregistered dealers is exigible to purchase tax u/s.7-A of the
1959 Act but, the assessee is entitled for the benefit of Clarifications
dated 09.11.1989 and 27.12.2000 issued by the revenue till the
same were withdrawn prospectively by the Clarification dated
28.01.2002 - Held: When the principles laid down by the
Constitutional Bench in Nandanam Construction Co. are applied
to the phraseology of Clause (a) of sub-s. (1) of s.7-A of the 1959
Act, four eventualities are covered thereunder, with reference to the
treatment of goods in question viz., (i) when they are consumed in
manufacture of other goods for sale; or (ii) when they are consumed
otherwise; or (iii) when they are used in manufacture of other goods
for sale; or (iv) when they are used otherwise - The bottles in
question have neither been consumed in manufacture of Beer/IMFL
nor they could be said to have been used in such manufacture of
Beer/IMFL, hence elements (i) and (iii) does not exist - The empty
bottles are filled up with liquor but such filling up has not resulted
in the bottles themselves being used up and bottles have retained
their basic identity, hence the activity in question does not fall within
the ambit of element (ii) - Insofar as (iv) element 'when they are
used otherwise' is concerned, the process of bottling with the use of
bottles was the unalienable part of the complete chain of processes
that the assessee was obliged to undertake for its business i.e.
manufacturing and selling the liquor - By this process, the bottles
*as corrected to the extent as per order dated 11/04/2022 in Miscellaneous Application
No. 608/2022 in Civil Appeal No. 7164/2013 by a two Judge Bench comprising of
Hon'ble Mr. Justice A.M. Khanwilkar and Hon'ble Mr. Abhay S. Oka.
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were used by the assessee in such a manner that they were no longer
available for sale in the form they were purchased from unregistered
dealers - That being the position, the bottles have indeed been 'used
otherwise' by the assessee - Therefore, the activity of assessee in
relation to the bottles in question is clearly covered by element (iv)
of Clause (a) of sub-s. (1) of s.7-A of the Act and making it exigible
to purchase tax - As far as benefit of Clarifications dated 09.11.1989
and 27.12.2000 are concerned, the Constitution Bench in Ratan
Melting & Wire Industries held that no direction can be issued to
enforce a Clarification or Circular contrary to the declaration of
law by the Courts - Thus, the High Court after having found that
purchase tax was leviable on the turnover in question u/s. 7-A of
the Act, could not have issued directions for benefit with reference
to the Clarifications/ Circulars dated 09.11.1989 and 27.12.2000,
particularly when such Clarifications/ circulars do not stand in
conformity with the statutory provisions and its interpretation by
the Courts - Hence, the order of the High Court as regards the
operation and effect of Clarifications/Circulars dated 09.11.1989
and 27.12.2000, cannot be approved.
Tamil Nadu General Sales Tax Act, 1959 - Taxability of Cash
discount on price - The assessee is engaged in the business of
manufacture of Beer and IMFL and for the said purpose purchased
empty bottles from unregistered dealers - The Assessing Officer
disallowed the exemption on cash discount allowed by the assessee
to Tamil Nadu State Marketing Corporation Limited and levied tax
on the said cash discount - The assessee submitted that any cash or
other discount on the price of goods sold cannot be included in the
turnover for the levy of tax - The H

## Text

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[2020] 6 S.C.R. 865
865
THE COMMERCIAL TAX OFFICER & ANR.
v.
MOHAN BREWERIES AND DISTILLERIES LIMITED
(Civil Appeal No. 7164 of 2013)
JUNE 29, 2020*
[A. M. KHANWILKAR AND DINESH MAHESHWARI, JJ.]
Tamil Nadu General Sales Tax Act, 1959 - s.7-A - The assessee
is engaged in the business of manufacture of Beer and IMFL
products - For the purpose of the said business of manufacture of
Beer and IMFL, the assessee purchased empty bottles from
unregistered dealers situated outside the State as well as from nondealers - The High Court held that the purchase of empty bottles
from unregistered dealers is exigible to purchase tax u/s.7-A of the
1959 Act but, the assessee is entitled for the benefit of Clarifications
dated 09.11.1989 and 27.12.2000 issued by the revenue till the
same were withdrawn prospectively by the Clarification dated
28.01.2002 - Held: When the principles laid down by the
Constitutional Bench in Nandanam Construction Co. are applied
to the phraseology of Clause (a) of sub-s. (1) of s.7-A of the 1959
Act, four eventualities are covered thereunder, with reference to the
treatment of goods in question viz., (i) when they are consumed in
manufacture of other goods for sale; or (ii) when they are consumed
otherwise; or (iii) when they are used in manufacture of other goods
for sale; or (iv) when they are used otherwise - The bottles in
question have neither been consumed in manufacture of Beer/IMFL
nor they could be said to have been used in such manufacture of
Beer/IMFL, hence elements (i) and (iii) does not exist - The empty
bottles are filled up with liquor but such filling up has not resulted
in the bottles themselves being used up and bottles have retained
their basic identity, hence the activity in question does not fall within
the ambit of element (ii) - Insofar as (iv) element 'when they are
used otherwise' is concerned, the process of bottling with the use of
bottles was the unalienable part of the complete chain of processes
that the assessee was obliged to undertake for its business i.e.
manufacturing and selling the liquor - By this process, the bottles
*as corrected to the extent as per order dated 11/04/2022 in Miscellaneous Application
No. 608/2022 in Civil Appeal No. 7164/2013 by a two Judge Bench comprising of
Hon'ble Mr. Justice A.M. Khanwilkar and Hon'ble Mr. Abhay S. Oka.
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were used by the assessee in such a manner that they were no longer
available for sale in the form they were purchased from unregistered
dealers - That being the position, the bottles have indeed been 'used
otherwise' by the assessee - Therefore, the activity of assessee in
relation to the bottles in question is clearly covered by element (iv)
of Clause (a) of sub-s. (1) of s.7-A of the Act and making it exigible
to purchase tax - As far as benefit of Clarifications dated 09.11.1989
and 27.12.2000 are concerned, the Constitution Bench in Ratan
Melting & Wire Industries held that no direction can be issued to
enforce a Clarification or Circular contrary to the declaration of
law by the Courts - Thus, the High Court after having found that
purchase tax was leviable on the turnover in question u/s. 7-A of
the Act, could not have issued directions for benefit with reference
to the Clarifications/ Circulars dated 09.11.1989 and 27.12.2000,
particularly when such Clarifications/ circulars do not stand in
conformity with the statutory provisions and its interpretation by
the Courts - Hence, the order of the High Court as regards the
operation and effect of Clarifications/Circulars dated 09.11.1989
and 27.12.2000, cannot be approved.
Tamil Nadu General Sales Tax Act, 1959 - Taxability of Cash
discount on price - The assessee is engaged in the business of
manufacture of Beer and IMFL and for the said purpose purchased
empty bottles from unregistered dealers - The Assessing Officer
disallowed the exemption on cash discount allowed by the assessee
to Tamil Nadu State Marketing Corporation Limited and levied tax
on the said cash discount - The assessee submitted that any cash or
other discount on the price of goods sold cannot be included in the
turnover for the levy of tax - The High Court relying on the decision
in Neyveli Lignite Corporation Ltd. took the view that as per
Explanation 2(iii) to s.2(r) of the Act, cash or other discount on the
price of goods sold cannot be included in the turnover for the levy
of tax and accordingly allowed in favour of the assessee and against
the revenue - Held: The issue has rightly been decided by the High
Court in favour of the assessee.
Words and Phrases - 'Consume', 'use', 'manufacture', 'in'
and 'otherwise' - discussed.
Doctrines/Principles - Doctrine of pari materia - discussed.
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Partly allowing C.A. No.7164 of 2013 and dismissing C.A.
No. 7165 of 2013 and C.A. No. 4416-4419 of 2014, the Court
HELD: 1. When the principles laid down by the Constitution
Bench in Nandanam Construction Co. coupled with the approved
interpretation in Ganesh Prasad Dixit are read with the analysis
in M.K. Kandaswami and are applied to the amended Section 7-A
of the Tamil Nadu General Sales Tax Act, 1959 with which this
Court is concerned in present case, the end-product of synthesis
is that the expression "or otherwise" qualifies, and provides
alternative to, the action of "manufacture"; and therefore,
consumption of the goods in question for manufacture or
otherwise as also use of the goods in question for manufacture or
otherwise are the acts/actions covered under clause (a) of subsection (1) of Section 7-A of the Tamil Nadu Act. [Para 34]
[921-F-G]
2. In other words, when the principles laid down by the
Constitution Bench in Nandanam Construction Co. are applied to
the phraseology of clause (a) of sub-section (1) of Section 7-A of
the Tamil Nadu Act, four eventualities are covered thereunder,
with reference to the treatment of the goods in question (which
had been purchased by the dealer in the circumstances where
sales tax had not been paid at the time of their purchase), viz., (i)
when they are consumed in manufacture of other goods for sale;
or (ii) when they are consumed otherwise; or (iii) when they are
used in manufacture of other goods for sale; or (iv) when they
are used otherwise. [Para 34.1][922-A-C]
3. It remains hardly a matter of doubt that so far the empty
bottles are concerned, even after being filled with liquor, they
remain bottles only, retaining their original elements including
shape, size and character. They are not "consumed" at all; and
there arise no question of they being "consumed in the
manufacture". Therefore, this Court has no hesitation in accepting
the submissions of assessee that the bottles in question have
not been consumed in manufacture of other goods for sale. [Para
44][932-D-E]
4. In continuity with the above, this Court is also inclined
to accept the submission of the assessee that the empty bottles
THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES
AND DISTILLERIES LIMITED
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have not even been "used" in manufacture. This is for the reason
that for operation and application of the phrase "uses in
manufacture", it has to be shown that the bottles in question have
been deployed as a means of achieving the purpose of
manufacture. As noticed, the phrase "manufacture of other goods
for sale", in the present case, refers to the goods manufactured
by the assessee, i.e., Beer/IMFL; and, in fact, use of the bottles
in question comes up in the activity of the assessee only after
manufacture of liquor (Beer/IMFL) has already been
accomplished by brewing or distillation. Needless to reiterate
that in relation to the activity of assessee, the action of bottling is
a separate process and is undertaken only after the process of
manufacture by way of brewing or distillation is complete. Thus
understood, it is clear that the goods in question (empty bottles)
cannot be said to have been "used" in manufacture.
[Para 44.1][932-F-H]
5. For what has been discussed hereinabove, this Court
has no hesitation in concluding that the bottles in question have
neither been consumed in manufacture of Beer/IMFL nor they
could be said to have been used in such manufacture of Beer/
IMFL. Hence, elements (i) and (iii) pertaining to clause (a) of
sub-section (1) of Section 7-A of the Act do not exist in this case.
[Para 45][933-A]
6. As already noticed, consumption requires the thing in
question being exhausted or ceasing to exist for being used up.
The bottles in question, even when used as containers of the
liquor manufactured by the assessee, had neither been exhausted
nor had ceased to exist; they have rather continued to exist while
retaining their basic identity and character as bottles. Of course,
they (empty bottles) had been filled up with liquor but such filling
up has not resulted in the bottles themselves being used up.
Hence, the activity in question does not fall within the ambit of
element (ii). However, the very same logic does not apply to
element (iv) because it cannot be said that the bottles in question
have not been "used otherwise". [Para 49.1][936-E-F]
7. As noticed, the expression "use" is of wide amplitude
and it refers to the usage or engagement of an article for the
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accomplishment of a purpose irrespective of whether the article
itself undergoes a visible change or not. The fact that the bottles
in question have indeed been used by the assessee in its overall
activity of manufacture and sale of liquor is clear from the fact
that the manufacture of liquor by the process of brewing or
distillation did not conclude the activity of the assessee.
Undoubtedly, for the sale of such manufactured liquor to
TASMAC, the assessee was required to put the same into the
bottles; and the sale by assessee could have taken place only
after such bottling of the liquor. The assessee has, indisputably,
undertaken this process of bottling by the use of the goods in
question, i.e., the empty bottles purchased from unregistered
dealers. Hence, it is but apparent that the goods in question (empty
bottles) have been used by the assessee, and for that matter,
have been used for an activity closely connected and co-related
with the main activity of manufacture of liquor as also as necessary
ingredient of the end-purpose of sale of liquor. Significantly, after
such use for bottling, the goods in question (empty bottles) did
not remain available for sale in the form in which they were
purchased by the assessee. [Para 49.2][936-G-H; 937-A-B]
8. In other words, the process of bottling with the use of
bottles in question has been an unalienable part of the complete
chain of processes that the assessee was obliged to undertake
for its business, i.e., manufacturing and selling the liquor. By this
process, the bottles in question were used by the assessee in
such a manner that they were no longer available for sale in the
form they were purchased from unregistered dealers. That being
the position, the bottles in question have indeed been "used
otherwise" by the assessee. The assessee cannot avoid operation
of the words "or otherwise" so far use of the bottles is concerned
by merely establishing that they have not been consumed in
manufacture or otherwise and further that they have not been
used in manufacture. Even when these three elements viz.,
"consumed in manufacture"; "consumed otherwise"; and "used
in manufacture" do not exist as regards the bottles in question in
the business activity of the assessee, it is but apparent the activity
of the assessee clearly entails the use of bottles for the purpose
of bottling and sale of liquor manufactured by it. This activity
THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES
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clearly takes the bottles in question within the fourth element
i.e., "used otherwise". [Para 49.3][937-C-F]
9. Hence, though the bottles in question have not been
"consumed otherwise", they have indeed been "used otherwise";
and therefore, the activity of assessee in relation to the bottles
in question is clearly covered by element (iv) of clause (a) of subsection (1) of Section 7-A of the Act. [Para 49.4][937-G]
10. To summarise the discussion aforesaid and to put views
of this Court in a nutshell, the goods in question (empty bottles)
have not been consumed in the manufacture of other goods for
sale nor they have been consumed otherwise because of having
retained their identity. They have also not been used in the
manufacture of other goods for sale because manufacture of Beer/
IMFL was complete without their use. However, they have been
used for bottling and when bottling remains an integral part of
the business activity of the assessee, i.e., of manufacturing the
liquor by the process of brewing/distillation and then, selling the
manufactured liquor by putting the same in bottles, they have
been "used otherwise". That being the position, use of the goods
in question for bottling takes the turnover of their purchase within
the net of Section 7-A of the Act. [Para 50][937-H; 938-A-B]
11. To put it more simply, if we read clause (a) of subsection (1) of Section 7-A of the Act sliced down to the elements
"uses in manufacture or otherwise", it is clear that the goods in
question (empty bottles) have been used for bottling, which use,
even if not for manufacture, had been a use otherwise which has
been closely connected with the business of the assessee and
whereby the bottles in question did not remain available for sale
in the form in which they were purchased. This is the plain and
clear operation of the dictum of Constitution Bench in the case
of Nandanam Construction Co.. Hence, applicability of Section 7A of the Act is complete and remains beyond the realm of doubt.
[Para 50.1][938-C-D]
12. As noticed, the High Court in its impugned order dated
10.09.2004 did reach to the conclusion that purchase tax was
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leviable on the purchase turnover of the empty bottles but found
the assessee entitled to the benefit of Clarifications/Circulars
issued by the revenue on 09.11.1989 and 27.12.2000. The revenue
has questioned this part of the order of the High Court. In order
to examine the rival contentions in this regard and the
correctness of proposition adopted by the High Court, this Court
may take note of the statutory provision in the Tamil Nadu Act
on the power of the Commissioner of Commercial Taxes to issue
clarification as also the particular Clarifications/Circulars relevant
to the present case. [Para 54][942-C-E]
13. In view of the pronouncement by the Constitution Bench
of this Court in Ratan Melting & Wire Industries, there remains
hardly any doubt on the principles that Clarifications/Circulars/
Instructions issued by the competent authority are binding on
the authorities under the respective statutes but so far as
declaration of law in regard to any particular statutory provision
is concerned, the view expressed in the binding decision of this
Court or the High Court is to be given effect to; and no direction
can be issued to enforce a clarification or circular contrary to the
declaration of law by the Courts. [Para 58][948-H; 949-A-B]
14. In the aforesaid view of matter, the High Court, after
having found that purchase tax was leviable on the turnover in
question under Section 7-A of the Act, could not have issued
directions for any benefit to the assessee with reference to the
Clarifications/Circulars dated 09.11.1989 and 27.12.2000,
particularly when such Clarifications/Circulars do not stand in
conformity with the statutory provision and its interpretation by
the Courts. [Para 62][951-D-E]
Assistant Commissioner (Intelligence) v. Nandanam
Construction Co. (1999) 115 STC 427; Burmah Shell
Oil Storage and Distributing Co. of India Ltd., Belgaum
v. Belgaum Borough Municipality AIR 1963 SC 906 :
[1963] Suppl. SCR 216; Commissioner of Central
Excise, Bolpur v. Ratan Melting & Wire Industries
(2008) 13 SCC 1 : [2008] 14 SCR 653 - followed.
THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES
AND DISTILLERIES LIMITED
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Ahmedabad (P) Primary Teachers' Assn. v.
Administrative Officer: (2004) 1 SCC 755 : [2004] 1
SCR 470; The State of Tamil Nadu v. M.K. Kandaswami
and Ors. (1975) 36 STC 191; Ganesh Prasad Dixit v.
Commissioner of Sales Tax, Madhya Pradesh (1969)
24 STC 343; Collector of Central Excise, Bombay-II v.
M/s. Kiran Spinning Mills (1988) 2 SCC 348 : [1988]
2 SCR 1006; Commissioner of Central Excise &
Customs, Gujarat v. Pan Pipes Resplendents Ltd. (2006)
1 SCC 777; Smt. Lila Vati Bai v. State of Bombay AIR
1957 SC 521 : [1957] SCR 721- relied on.
Raj Sheel & Ors. v. State of Andhra Pradesh & Ors.
(1989) 74 STC 379; Appollo Saline Pharmaceuticals
(P) Limited v. State of Tamil Nadu (2000) 120 STC 493;
Appollo Saline Pharmaceuticals (P) Limited v. Deputy
Commercial Tax Officer and Anr. (2002) 125 STC 500;
Premier Breweries v. State of Kerala (1998) 108 STC
598; Associated Pharmaceutical Industries Private Ltd.
v. The State of Tamil Nadu (1986) 63 STC 316;
Collector of Central Excise, Vadodra v. Dhiren Chemical
Industries (2002) 126 STC 122; Neyveli Lignite
Corporation Ltd. v. Commercial Tax Officer, Cuddalore
and Anr. (2001) 124 STC 586; Hotel Balaji and Ors. v.
State of Andhra Pradesh and Ors. (1993) 88 STC 98;
State of Uttar Pradesh and Ors. v. Mohan Meakin
Breweries Ltd and Anr. (2011) 13 SCC 588 : [2011] 14
SCR 98; Mafatlal Industries Ltd. v. Nadiad Nagar
Palika and Anr. (2000) 3 SCC 1 : [2000] 2 SCR 52;
HMM Limited and Anr. v. Administrator, Bangalore City
Corporation, Bangalore and Anr. (1989) 4 SCC 640 :
[1989] 1 Suppl. SCR 353; Punjab Aromatics v. State of
Kerala (2008) 11 SCC 482 : [2008] 7 SCR 235; Union
of India v. Alembic Glass Industries Ltd. (2010) 11 SCC
745; Ganesh Trading Co., Karnal v. State of Haryana
and Anr. (1973) 32 STC 623; Kathiawar Industries Ltd.
v. Jaffrabad Municipality (1979) 4 SCC 56 : [1980] 1
SCR 243; J.K. Cotton Spinning & Weaving Mills Co.
Ltd. v. Sales Tax Officer, Kanpur and Ors. (1965) 16
STC 563; Commissioner of Income Tax, Kochi v. Trans
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Asian Shipping Services (P) Ltd. (2016) 8 SCC 604 :
[2016] 3 SCR 337; Signode India Ltd. v. Commissioner
of Central Excise & Customs-II (2017) 4 SCC 613 :
[2017] 6 SCR 997; State of Tamil Nadu and Anr. v. India
Cements Limited and Anr. (2011) 13 SCC 247 : [2011]
7 SCR 395; H.M. Bags Manufacturer v. CCE 1997 (94)
ELT 3; Commissioner of Customs, Mumbai v. Ashish
Bajpai 2007 (217) ELT 163; CST v. Pio Food Packers
(1980) Suppl. SCC 174 : [1980] 3 SCR 1271; CST v.
Thomas Stephen & Co. Ltd. (1988) 2 SCC 264 : [1988]
3 SCR 248; S. Prakash Rao and Anr. v. Commissioner
of Commercial Taxes and Ors. (1990) 2 SCC 259;
George Da Costa v. Controller of Estate Duty Mysore
AIR 1967 SC 849; Western India Plywood Ltd. v. P.
Ashokan (1997) 7 SCC 638 : [1997] 4 Suppl. SCR 180;
Appollo Saline Pharmaceuticals (P) Limited v. State of
Tamil Nadu (2000) 120 STC 493; Kalyani Packaging
Industries v. Union of India (2004) 6 SCC 719 -
referred to.
Case Law Reference
[2011] 14 SCR 98
referred to
Para 10.2
[2000] 2 SCR 52
referred to
Para 10.2.1
[1989] 1 Suppl. SCR 353
referred to
Para 10.2.1
[2008] 7 SCR 235
referred to
Para 10.2.1
[1988] 2 SCR 1006
relied on
Para 10.2.1
[1963] Suppl. SCR 216
followed
Para 10.2.1
[1980] 1 SCR 243
referred to
Para 10.2.1
[2016] 3 SCR 337
referred to
Para 11.1
[2017] 6 SCR 997
referred to
Para 11.1
[2011] 7 SCR 395
referred to
Para 11.1
[2008] 14 SCR 653
followed
Para 11.1
[1980] 3 SCR 1271
referred to
Para 23
[1988] 3 SCR 248
referred to
Para 23.3.1
[2004] 1 SCR 470
relied on
Para 25
THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES
AND DISTILLERIES LIMITED
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[1957] SCR 721
relied on
Para 48
[1997] 4 Suppl. SCR 180
referred to
Para 48.1
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7164
of 2013.
From the Judgment and Order dated 10.09.2004 of the High Court
of Judicature at Madras in W.P. No. 25081 of 2002.
With
Civil Appeal Nos. 7165 of 2013, 4416-4419 of 2014.
 Balaji Srinivasan, AAG, S.K. Bagaria, Sr. Adv., K. K. Mani,
Ms. T. Archana, Kumar Ajit Singh, Ms. A. Jaswanthi, Ms. Purbitaa
Mitra, K. V. Vijayakumar, Advs. for the appearing parties on 26-6-2020.
V. Krishnamurthy, AAG, Dr. Joseph Aristotle S., AOR, Nupur
Sharma, Shobhit Dwivedi, Sanjeev Kumar Mahara, Jessica Bhardwaj,
K.K. Mani, Advs. for the appearing parties on 11-4-2022.
The Judgment of the Court was delivered by
DINESH MAHESHWARI, J.
Preliminary and Brief Outline
1. The appeals in this batch, involving similar questions between
the same parties, have been considered together and are taken up for
disposal by this common judgment.
2. Civil Appeal Nos. 7164 of 2013 and 7165 of 2013, filed
respectively by the revenue and the assessee, are directed against the
final judgement and order dated 10.09.2004, passed by a Division Bench
of the High Court of Judicature at Madras in W.P. No. 25081 of 2002,
whereby the High Court has allowed the writ petition filed by the assessee
while holding, inter alia, that though the purchase turnover, with respect
to the purchase of empty bottles from unregistered dealers under bought
note, is exigible to purchase tax under Section 7-A of the Tamil Nadu
General Sales Tax Act, 19591 but, the assessee is entitled for the benefit
of Clarifications dated 09.11.1989 and 27.12.2000 issued by the revenue
till the same were withdrawn prospectively by the Clarification dated
28.01.2002 and therefore, the revenue is not entitled to levy purchase
tax for the said turnover of purchase of empty bottles for the assessment
year 1996-97.
2.1. The assessee has filed another set of appeals in Civil Appeal
Nos. 4416-4419 of 2014 against the order of the High Court dated
05.12.2013, passed in Tax Case (Revision) Nos. 1667,1669, 1857 of
1 Hereinafter also referred to as 'the Tamil Nadu Act' or simply 'the Act'.
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2008 and 13 of 2009, wherein the High Court has held that the assessee
is liable to pay purchase tax under Section 7-A of the Act for the
assessment years 1986-87 to 1989-90 on the turnover of purchase of
empty bottles from the unregistered dealers while following its aforesaid
earlier order dated 10.09.2004.
3. Put in a nutshell, these matters involve the interpretation of
Section 7-A of the Tamil Nadu Act, providing for levy of purchase tax
under certain circumstances, with root questions as to whether purchase
tax is leviable on the purchase turnover of empty bottles purchased by
the assessee in the course of its business of manufacture and sale of
Beer and Indian Made Foreign Liquor2 and as to the operation and effect
of the Clarifications dated 09.11.1989 issued by the Special Commissioner
and Commissioner of Commercial Taxes, Chennai3 and dated 27.12.2000
issued by the Principal Commissioner and Commissioner of Commercial
Taxes, Chennai4. On the sideways, a separate question is as to whether
cash discount on the price offered by the assessee to the Tamil Nadu
State Marketing Corporation Limited5 is taxable in view of Explanation
2(iii) to Section 2(r) of the Act?
4. As noticed, the impugned order dated 05.12.2013 in Civil Appeal
Nos. 4416-4419 of 2014 is essentially based on the previous order of the
High Court dated 10.09.2004 which is in challenge by the revenue as
also by the assessee in Civil Appeal Nos. 7164 of 2013 and 7165 of
2013. Hence, we propose to deal with the cross-appeals against the
order dated 10.09.2004 in necessary details.
Civil Appeal Nos. 7164 and 7165 of 2013: Relevant
Background
5. The assessee is a company incorporated under the Companies
Act, 1956 and is engaged in the business of manufacture of Beer and
IMFL products on the strength of license issued under the Tamil Nadu
Indian Made Foreign Spirits (Manufacture) Rules, 1981 in its factory
located at No. 7, Selva Street, M.M. Nagar, Valasaravakkam, Chennai
- 600 087. It is an assessee on the file of the Commercial Tax Officer,
Porur Assessment Circle.
2 'IMFL' for short.
3 'SCCT' for short
4 'PCCT' for short
5 'TASMAC' for short
THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES
AND DISTILLERIES LIMITED [DINESH MAHESHWARI, J.]
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5.1. The assessee, for the purpose of the said business of
manufacture of Beer and IMFL, purchased empty bottles from
unregistered dealers situated outside the State as well as from non-dealers
for the bottling of Beer and IMFL. It has been the case of the assessee
that the said bottles were recycled after use by the consumers and were
re-filled with Beer and IMFL. The cost of bottles was Rs. 35.69 per
case as against the manufacturing cost of Beer of Rs. 109.93 per case,
taking the cost of bottles to 32% of the manufacturing cost. With respect
to IMFL, the cost of bottles was Rs. 60.40 per case as against the
manufacturing cost of Rs. 217.06 per case, which had been 28% of the
manufacturing cost. According to the assessee, these bottles purchased
against bought notes were the bottles which were already used, filled
and sold for a price and continued to be available for re-use and further
trading.
5.2. It had also been the case of assessee that as per Rule 29 of
the Tamil Nadu Brewery Rules,1983, the manufacturer had the option
of filling the Beer either in bottles or casks or even kegs; that the entire
Beer and IMFL manufactured by assessee was sold only to TASMAC,
who had the exclusive privilege of supplying the liquor by wholesale for
the entire State of Tamil Nadu. The assessee had also been offering
cash discount for early settlement of bills by TASMAC.
6. For the assessment year 1996-97, the assessee was assessed
on the files of the revenue on a total turnover of Rs. 2,52,33,32,932/- and
Rs. 2,49,65,22,854/- respectively by the assessment order dated
21.10.1998. Thereafter, the Assessing Officer6, by a notice dated
30.04.1999, proposed to levy purchase tax under Section 7-A of the Act
on the purchase of empty bottles from unregistered dealers under bought
note through salesman permits, on a sum of Rs. 24,78,20,465/- at the
rate of 16% with surcharge, additional surcharge as also additional tax
at the rate of 2.50%.
6.1. In his notice dated 30.04.1999, the AO, inter alia, observed
that addition of sub-section (7) to Section 3 with effect from 22.05.1984
specifically treats the containers or packing materials as part of the goods
sold or purchased; that there was no doubt that the bottles lost their
identity as bottles, which were liable to tax at 10% before filling and they
became integral part of the finished goods after filling and attracted
liability under the charging Section 3(7) of the Act; and when the bottles
6 Hereinafter also referred to as 'the AO'
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became part of the goods, liability under Section 7-A of the Act was
definite because, as a part of finished goods used in manufacture, it had
not suffered the tax earlier. The AO also observed that in view of decision
of this Court in Raj Sheel & Ors. v. State of Andhra Pradesh & Ors.:
(1989) 74 STC 379, though the empty bottles were used as packing
material and merged with the consideration of the main product, there
was no separate sale of these empty bottles purchased from unregistered
dealers and hence, such purchase of empty bottles was liable to tax
under Section 7-A of the Act, as there was no subsequent taxable event
on the sale of the packaging material.
6.2. In response to the said notice dated 30.04.1999, the assessee
submitted its objections on 27.09.1999 to the effect that Section 7-A of
the Act for levy of purchase tax was not attracted on the purchase of
empty bottles for packing Beer and IMFL and, in any event, the proposed
levy of purchase tax was illegal and unjustified in view of the Clarification
dated 09.11.1989 issued by the SCCT, that was binding on the revenue
as per Section 28-A of the Act. The assessee also placed reliance on the
proceedings of the Appellate Assistant Commissioner (CT), Chennai7
with respect to the assessment years 1986-87 to 1988-89 holding that
imposition of purchase tax on the purchase of empty bottles was illegal
and unjustified. The mainstay of the assessee had been that the empty
bottles purchased by it were neither consumed nor used in the
manufacture of other goods; that the manufacture of Beer or IMFL was
complete much prior to its bottling; that the bottling of Beer or IMFL did
not complete the process of manufacture; and that it was also a clear
trade practice to sell Beer even in barrels, which itself showed that
manufacture of Beer had nothing to do with its subsequent bottling.
6.3. The PCCT, before passing final orders on the aforesaid notice
dated 30.04.1999 by the AO, issued his Clarification dated 27.12.2000
that purchase of empty bottles could not be made liable to be charged
under Section 7-A of the Act during the assessment years 1991-92,199394, 1994-95 and 1995-96 as the Clarification dated 09.11.1989 was in
force at the relevant time.
6.4. However, the PCCT later on re-examined the issue in light of
the decision of Tamil Nadu Taxation Special Tribunal, Chennai8 in the
case of Appollo Saline Pharmaceuticals (P) Limited v. State of Tamil
7 Hereinafter also referred to as 'the Appellate Authority'
8 Hereinafter also referred to as 'the Tribunal'
THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES
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Nadu: reported in (2000) 120 STC 493, and stated by his Clarification
dated 28.01.2002, in modification of the earlier Clarifications, that the
assessee was liable to tax under Section 7-A of the Act for the purchase
of empty bottles from unregistered dealers that were used for packing
of Beer/IMFL manufactured by it.
6.5. Apart from the above, the AO, by his notice dated 05.02.2002,
proposed to revise the earlier assessment for the assessment year
1996-97 by disallowing the exemption on cash discount allowed by the
assessee to TASMAC and to levy tax on the said cash discount, with
surcharge and additional surcharge @ 15% and 5% respectively as also
the additional sales tax. In response to this notice dated 05.02.2002, the
assessee, by its letter dated 18.03.2002, submitted that any cash or other
discount on the price allowed in respect of any sale and any amount
refunded in respect of articles returned by customers is not to be included
in the turnover. In this regard, the assessee placed reliance on
Explanation 2(iii) to Section 2(r) of the Act.
6.6. After examining the objections of the assessee, the AO, by
his order dated 27.03.2002, confirmed the proposal of levying purchase
tax @ 16% under Section 7-A of the Act on the bottles purchased from
unregistered dealers with surcharge and additional surcharge @ 15%
and 5% respectively as also additional sales tax @ 2.5% and penalty,
essentially on the grounds that empty bottles were purchased from
unregistered dealers; that they had been used as raw materials in
manufacture of Beer and IMFL products; and that they had not been
sold separately. The AO, in support of his conclusion, relied upon the
decision of the Division Bench of Madras High Court in Appollo Saline
Pharmaceuticals (P) Limited v. Deputy Commercial Tax Officer
and Anr.: (2002) 125 STC 500, which relied upon the decision of this
Court in Premier Breweries v. State of Kerala: (1998) 108 STC 598.
6.7. Further, while overruling the objections in respect of levy of
tax on cash discount, the AO confirmed the proposal for disallowing the
cash discount allowed to TASMAC while observing that discount was
only for early settlement of bills of the Distilleries that was akin to
discounting the bills with Banks/Financial Institutions; and though the
nomenclature adopted was 'cash discount', it was nothing but a
commission availed for easy payments which did not fall within the
purview of discount and was not deductible.
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7. Being aggrieved by the order so passed by the AO, the assessee
preferred O.P. No.476 of 2002 before the Tribunal seeking quashing of
the order dated 27.03.2002 and directions to the AO to give effect to the
Clarifications dated 09.11.1989 and 27.12 .2000.
7.1. The Tribunal, by its order dated 26.06.2002, while dismissing
O.P. No. 476 of 2002, observed that when the latest Clarification dated
28.01.2002 was issued on the basis of view taken by the Tribunal and
confirmed by the High Court, the assessee was not entitled to question
the proceedings of AO on the basis of the Clarifications issued earlier. It
was also observed that the rule applicable for tax on the bottles could be
extended to casks and kegs too and, by exclusion of casks and kegs, the
tax applicable on bottles alone cannot be set aside or withdrawn. The
Tribunal further observed that the decision of the jurisdictional High Court
in Associated Pharmaceutical Industries Private Ltd. v. The State of
Tamil Nadu: (1986) 63 STC 316 was not applicable as the same was
rendered prior to the amendment of Section 7-A(1)(a) of the Act by the
Tamil Nadu Act No. 78 of 1986 effective from 01.01.1987; and with
insertion of the word "use" by way of amendment, the meaning conveyed
by the said section was different from the meaning conveyed earlier.
Thus, while proceeding in tune with the Clarification dated 28.01.2002,
the Tribunal refused to interfere with the order dated 27.03.2002.
8. Being aggrieved by the Tribunal's order dated 26.06.2002, the
assessee filed the writ petition, being W.P. No. 25081 of 2002, before
Madras High Court, seeking a writ of certiorarified mandamus for
quashing the proceedings in question while directing the AO to pass
fresh orders giving effect to the Clarifications/Circulars dated 09.11.1989
and 27.12.2000. The writ petition so filed by the assessee has been
considered and disposed of by the High Court by its impugned order
dated 10.09.2004.
8.1. The following three questions were considered by the High
Court in its impugned order dated 10.09.2004: -
"(i) Whether the purchase turnover of empty bottles purchased
by the petitioner Company, who are engaged in the business of
manufacturing Beer and IMFL products, from unregistered dealers
for bottling Beer and IMFL manufactured by them, through the
bought note to the extent of Rs. 24,78,20,465.00 is attracted for
purchase tax under Section 7-A of the Tamil Nadu General Sales
Tax Act (for brevity "the Act")?;
THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES
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(ii) Whether purchase tax is leviable on the purchase turnover of
the empty bottles purchased by the petitioner Company to the
extent of Rs. 24,78,20,465.00, under Section 7-A of the Act, in
spite of the clarifications dated 9.11.1989 and 27.12.2000 issued
in favour of the petitioner Company by the Special Commissioner
of Commercial Taxes, Chennai, in view of Section 28A of the
Act?; and
(iii) Whether cash discount on the price offered by the petitioner
Company to the TASMAC is taxable in view of explanation 2(iii)
to Section 2(r) of the Act?"
8.2. After taking into consideration the rival contentions and
exhaustively dealing with the case law on the subject, the High Court, by
applying the law laid down by this Court in Premier Breweries (supra)
and Assistant Commissioner (Intelligence) v. Nandanam
Construction Co.: (1999) 115 STC 427; and with reference to the
amended Section 7-A of the Act and the object of this provision as
explained by this Court in the case of The State of Tamil Nadu v. M.K.
Kandaswami and Ors.: (1975) 36 STC 191 i.e., to plug the leakage
and prevent evasion of tax with respect to purchase of goods, rejected
the contention of assessee that the turnover for the purchase of empty
bottles did not attract levy of purchase tax under Section 7-A of the Act.
The High Court held as follows:-
"7.6. Hence, applying the law laid down by the Apex Court in (i)
PREMIER BREWERIES v. STATE OF KERALA, [1998] 108
STC 598; and (ii) ASSISTANT COMMISSIONER
(INTELLIGENCE) v. NANDANAM CONSTRUCTION CO.,
[1999] 115 STC 427, which was followed by this Court in
APPOLLO SALINE PHARMACEUTICALS (P) LTD., v.
DEPUTY COMMERCIAL TAX OFFICER & ANOTHER,
[2002] 125 STC 500, and keeping in mind the object of Section 7A of the Act, as amended, as observed in STATE OF TAMIL
NADU v. M.K. KANDASWAMI & OTHERS, [1975] 36 STC
191, viz., to plug the leakage and prevent evasion of tax with
respect to purchase of empty bottles purchased from unregistered
dealers under the bought note, we reject the contention of Mr.
C.Natarjan that the purchase turnover for the purchase of empty
bottles from unregistered dealers under the bought note is not
attracted for levy of purchase tax under Section 7-A of the Act."
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8.3. However, with respect to the second question, the High Court,
inter alia, observed that the Clarification dated 27.12.2000 gained
statutory force in view of Section 28-A of the Act, which was inserted
by the amendment with effect from 06.11.1997. Further, while relying
on various decisions including that of the Constitution Bench of this Court
in the case of Collector of Central Excise, Vadodra v. Dhiren
Chemical Industries : (2002) 126 STC 122, it was also observed
that even though the Clarification dated 09.11.1989 was executive in
nature, the same was binding on the authorities till the concessions given
to the assessee under the Clarification were withdrawn prospectively
with effect from 28.01.2002; and the revenue could not refuse the benefit
of the Clarifications dated 9.11.1989 and 27.12.2000 in respect of
purchase tax under Section 7-A of the Act for the assessment year
1996-97.
The High Court answered this question in favour of the assessee
as follows:-
"8.6.10. It is, therefore, clear that even though the clarification
dated 9.11.1989 is executive in nature, the same is binding on the
authorities till the concessions given to the petitioner under the
clarification were withdrawn, which could be done only
prospectively, viz., in the instance case, with effect from 28.1.2002,
and the revenue could not refuse the benefit of the clarifications
dated 9.11.1989 and 27.12.2000 in respect of levy of purchase
tax under Section 7-A of the Act for the impugned assessment
year 1996-97. 8.7. For all these reasons, we are convinced that
even though the purchase turnover with respect to the purchase
of empty bottles from the unregistered dealers under bought note
can be charged for purchase tax under Section 7-A of the Act,
the petitioner is entitled for the benefit of the clarifications dated
9.11.1989 and 27.12.2000 till the same is withdrawn prospectively
by the clarification dated 28.1.2002 and therefore, the impugned
levy of purchase tax on the purchase turnover for the purchase of
empty bottles from unregistered dealers under Section 7-A of the
Act is illegal."
8.4. Lastly, with respect to the third question, the High Court,
while relying on various decisions including that of this Court in Neyveli
Lignite Corporation Ltd. v. Commercial Tax Officer, Cuddalore and
Anr.: (2001) 124 STC 586, took the view that as per Explanation
THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES
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2(iii) to Section 2(r) of the Act, cash or other discount on the price of
goods sold cannot be included in the turnover for the levy of tax.
Accordingly, this question was also answered in favour of the assessee
and against the revenue as follows:-
"9.4. In NEYVELI LIGNITE CORPORATION LTD. v.